My wife and I were kicking this idea around and wanted to get some
outside input.

We're buying a home for about $140K. We are able to put 20% down so we
won't have to pay PMI, but I'd like to drop my monthy payment even
further. We have zero credit card debt now, and an excellent credit
score. We were thinking about borrowing enough on one of the credit
cards to put down $10K more on the house, and purchase 2 discount
points. Before this idea we were not planning on purchasing any
discount points (don't really have the money after the 20% down) We
have a credit card convenience check for 3.99% until the balance is
paid off. So its cheap money. Yes the interest won't be tax
deductible, but the interest portion is only $20 a month, so I'm not
concerned about that.

We'd pay off the credit card loan in 5 years - thats where my $20 a
month in interest figure came from, I'm not sure its completely
correct. 5 years is the break even point for the discount points, too.

So after the 5 year period the extra credit card portion of the house
payment would be gone and we would end up with a house payment that is
$230 less than without borrowing the credit card money. Thats almost a
25% reduction.

The downside is that if our payment is even 1 day late the interest
rate will probably jump up to 16% or something. I'll cross that bridge
if I get to it, but we don't plan on being late.

So is this crazy or what? Thanks in advance for your input.

It sounds good but as someone who has done a lot of reno on plastic, I
suggest you simplify things and just get a normal mortgage. AT most,
finance the points.

Note that the mortgage company will want to know what you're doing
getting a cash advance and that in many cases, they won't let you
borrow the down payment, which is what you'd be doing.

Sleep at night, keep it simple...

writes:
So is this crazy or what? Thanks in advance for your input.

You seem to have a good handle on the pros and cons.

Talk it over with your financing guy. I'm guessing what's going to
possibly stop it is that the mortgage company that underwrites the
loan might not be so keen on a down payment that's being written on a
credit card check. However, it somehow it can be documented that only
the discount points are being paid for that way, maybe they'll go for
it.

Buying 2 discount points though, that's where the craziness of your
plan might be. How sure are you that you'll be in this place long
enough to justify prepaying so much (annually tax deductible I might
add) interest?

Shop around for rates and make sure you're not getting raped on the
loan. 6.5 to 6.625 on a conforming 30 yr fixed should be very easy to
get from a broker according to a major wholesale lender's rates for
today, assuming your fico is over 730. Those are still some
historically low numbers, and given the annual tax deduction you get
from mortgage interest, I'd be hesitant to prepay such a big chunk of
interest up front to attain a smaller monthly payment in 5 years.

Stuff happens, and in 5 years you may not be in that house, and that
credit card balance will still be there, and those discount points
will be long gone in the mortgage company's pocket.

Best Regards,
--
Todd H.
http://www.toddh.net/

If you are going to prepay, then prepay the principal, not
the interest. Which means: do not buy points! Get a smaller
mortgage or make prepayments as you go along. An advantage
to prepayments is that if your cash flow gets tight, you can
suspend making them.

Una

In article , Una wrote:

If you are going to prepay, then prepay the principal, not
the interest. Which means: do not buy points! Get a smaller
mortgage or make prepayments as you go along. An advantage
to prepayments is that if your cash flow gets tight, you can
suspend making them.


I disagree with this advice. Buying down the rate can save thousands
over the life of the loan.


Dimitri

(D. Gerasimatos) writes:
In article , Una wrote:

If you are going to prepay, then prepay the principal, not
the interest. Which means: do not buy points! Get a smaller
mortgage or make prepayments as you go along. An advantage
to prepayments is that if your cash flow gets tight, you can
suspend making them.


I disagree with this advice. Buying down the rate can save thousands
over the life of the loan.

But, does anyone really know the life of their loan?

A pay down in principal lowers interest and reduces how much you owe,
and directly increases your equity in the house.

A buy down of an interest rate only saves you money IF you stay in the
house and keep that loan for a relatively long time horizon.
Statistically, very few people stay in teh same place long enough to
make a 2 point paydown worth it, and even if they do, they'll
typically find themselves refinancing for one reason or another at
least once during their stay in that residence.



Best Regards,
--
Todd H.
http://www.toddh.net/

In article ,
(D. Gerasimatos) wrote:

In article , Una wrote:

If you are going to prepay, then prepay the principal, not
the interest. Which means: do not buy points! Get a smaller
mortgage or make prepayments as you go along. An advantage
to prepayments is that if your cash flow gets tight, you can
suspend making them.


I disagree with this advice. Buying down the rate can save thousands
over the life of the loan.

But in general, the cost of the points is not worth the
savings in interest.

-john-

--
================================================== ====================
John A. Weeks III 952-432-2708
Newave Communications http://www.johnweeks.com
================================================== ====================

If you a purchasing a home for 140K with 20% down, the amount you will
need to finance will be 112K. If you are interested in purchasing two
discount points to purchase down the rate even further, your cash
investment will only be 2240.00 not 10K (1 discount point = 1% of the
loan amount). Who told you that the cost of two discount points on a
112K loan is 10K? If the lender did, proceed with caution or
reconsider your choice in lenders (because it appears that they are
building added profit for themselves in the discount point allocation).


Before you decide to invest in discount points, I suggest you that
figure out the breakeven point (the breakeven point is the amount of
time you need to hold the mortgage before it makes sense to pay
discount points). To determine this, you will need to know the
following data; interest rate without discount points and interest rate
with discount point. I'll make some assumptions to demonstrate how to
calculate the breakeven point.

Let's assume that you have been offered the following:

Loan amount: 100K
Option 1: 6.75% with 0 points OR
Option 2: 6.50% with 2 points
Cost of 2 Discount Points: 2000
Option 1 Payment: 648.60
Option 2 Payment: 632.07
Difference Between Option 1 and Option 2 Payments: 16.53
Breakeven Point (Cost of Discount Points / Payment Difference)

In this example, the borrower would need to hold the mortgage for
approx. 121 months or 10 years in order for the investment in discount
points to make sense. Does it makes sense to invest in discount
points? The answer is dependant on how long you intend to hold the
mortgage and stay in the property.

As to your method to finance discount points, you have already noted
that it has one flaw (if you pay late, your interest rates will be
adjusted upward). As the true cost of 2 discount points on a loan
amount of 112K is only 2240.00, this approach is OK, but there are
other alternatives that are more beneficial.

If you are invested in 401K plan at work, you could consider borrowing
from it to finance the cost of the discount points. The benefits to
this approach is that the interest charged for the 401K loan is
reinvested back into your 401K. Simply put, rather then paying the
credit card co. principal and interest payments for their sole benefit,
you will be paying yourself principal and interest payments and
reinvesting the same back into your retirement fund. This approach
doesn't make sense if job stability is in question, because you would
be subject to early withdrawal penalties after you have been terminated
from your job.

As an other poster has already suggested, comparison shopping with
other lenders always makes sense and goes a long way to ensuring that
you are getting the best offer.

Regards,

H. Scott Miller
National Commercial and Residential Lender/Broker
Carteret Mortgage
TOLL FREE PHONE#: 1.877.716.6495
TOLL FREE FAX#: 1.877.578.2041
EMAIL:

Real Estate Help Desk (www.RealEstate-IQ.com)
Virtual Loan Assistant (www.EZMortgageLoanz.com)


wrote:
My wife and I were kicking this idea around and wanted to get some
outside input.

We're buying a home for about $140K. We are able to put 20% down so we
won't have to pay PMI, but I'd like to drop my monthy payment even
further. We have zero credit card debt now, and an excellent credit
score. We were thinking about borrowing enough on one of the credit
cards to put down $10K more on the house, and purchase 2 discount
points. Before this idea we were not planning on purchasing any
discount points (don't really have the money after the 20% down) We
have a credit card convenience check for 3.99% until the balance is
paid off. So its cheap money. Yes the interest won't be tax
deductible, but the interest portion is only $20 a month, so I'm not
concerned about that.

We'd pay off the credit card loan in 5 years - thats where my $20 a
month in interest figure came from, I'm not sure its completely
correct. 5 years is the break even point for the discount points, too.

So after the 5 year period the extra credit card portion of the house
payment would be gone and we would end up with a house payment that is
$230 less than without borrowing the credit card money. Thats almost a
25% reduction.

The downside is that if our payment is even 1 day late the interest
rate will probably jump up to 16% or something. I'll cross that bridge
if I get to it, but we don't plan on being late.

So is this crazy or what? Thanks in advance for your input.

$cott wrote:
If you a purchasing a home for 140K with 20% down, the amount you will
need to finance will be 112K. If you are interested in purchasing two
discount points to purchase down the rate even further, your cash
investment will only be 2240.00 not 10K (1 discount point = 1% of the
loan amount). Who told you that the cost of two discount points on a
112K loan is 10K? If the lender did, proceed with caution or
reconsider your choice in lenders (because it appears that they are
building added profit for themselves in the discount point allocation).

No, the $10K was going to be an extra down payment. I was also
considering purchasing 2 points, bring the total amount borrrowed on
the card to around $12200. The break even point on the points is 5
years, I'm still not sure if I want to do that...

Put putting the extra $10K now, and paying that off in 5 years, and
then continuing to pay that same full amount each month by putting the
extra towards the mortgage after the CC is paid off - works out to
paying off the morgage 4 years faster than just paying the extra
payment alone.

-Ryan

"$cott" writes:

[very useful, informative information snipped]

H. Scott Miller
National Commercial and Residential Lender/Broker
Carteret Mortgage
TOLL FREE PHONE#: 1.877.716.6495
TOLL FREE FAX#: 1.877.578.2041
EMAIL:

Real Estate Help Desk (www.RealEstate-IQ.com)
Virtual Loan Assistant (www.EZMortgageLoanz.com)

Other lenders, take note... THIS is how you participate in Usenet, and
perhaps pick up some business as a side effect to being a genuinely
helpful, reasonable participant in the newsgroup.

Kudos Scott.

--
Todd H.
http://www.toddh.net/

Todd H. wrote:
Other lenders, take note... THIS is how you participate in Usenet, and
perhaps pick up some business as a side effect to being a genuinely
helpful, reasonable participant in the newsgroup.

Kudos Scott.

I agree. If only we could get him to STOP TOP POSTING.

On 21 Jun 2006 05:52:30 -0700, "$cott"
wrote:

[stuff cut]
If you are invested in 401K plan at work, you could consider borrowing
from it to finance the cost of the discount points. The benefits to
this approach is that the interest charged for the 401K loan is
reinvested back into your 401K. Simply put, rather then paying the
credit card co. principal and interest payments for their sole benefit,
you will be paying yourself principal and interest payments and
reinvesting the same back into your retirement fund. This approach
doesn't make sense if job stability is in question, because you would
be subject to early withdrawal penalties after you have been terminated
from your job.

The other serious drawback to this approach is the lost earnings
opportunity, which many people overlook in their zeal to find cash. Be
very careful before taking this option.

"John A. Weeks III" wrote in message
...
In article ,
(D. Gerasimatos) wrote:

In article , Una wrote:

If you are going to prepay, then prepay the principal, not
the interest. Which means: do not buy points! Get a smaller
mortgage or make prepayments as you go along. An advantage
to prepayments is that if your cash flow gets tight, you can
suspend making them.


I disagree with this advice. Buying down the rate can save thousands
over the life of the loan.

But in general, the cost of the points is not worth the
savings in interest.

Like most things, it depends. I had my loan officer crunch the numbers both
ways, and the payback period was only a couple of years. I plan on keeping
the house 7-8 years minimum, so it was a no-brainer. And unless something
major happens, I don't see refinancing as likely, since I got my paper at
very close to the low point. I don't think I'll see 5.4 again anytime soon.
Once I get past these initial PM repairs, I plan to start throwing extra
against principal.

aem sends....

"Travis Jordan" wrote:

I agree. If only we could get him to STOP TOP POSTING.

Or get people to use an intelligent newsreader that handles threaded messages
properly, in which case top posting is very useful and polite.

In article ,
John A. Weeks III wrote:
In article ,
(D. Gerasimatos) wrote:

In article , Una wrote:

If you are going to prepay, then prepay the principal, not
the interest. Which means: do not buy points! Get a smaller
mortgage or make prepayments as you go along. An advantage
to prepayments is that if your cash flow gets tight, you can
suspend making them.


I disagree with this advice. Buying down the rate can save thousands
over the life of the loan.

But in general, the cost of the points is not worth the
savings in interest.


Like someone else said, it depends.


I just did a sample loan at eloan.com using a hypothetical $315,000
mortgage. Right now, one can save 0.5% interest by buying 1.5 points
on a 30 year fixed mortgage.


With points, the payment is $1991/month.

Without the points, the payment is $2096/month.


The points cost $4725. The breakeven point is after about 4 years
(45 months).


This isn't accounting for having the $4725 invested for 4 years, nor for
having the $105/month invested. I am also not taking into account tax
deductions (both for the points and interest paid).


Still, 4 years is not that long. Most people move after 7 years. I have seen
scenarios (depending on the mortgage market) in which the situation can be
even better than this particular example.


Dimitri

Clark W. Griswold, Jr. wrote:
"Travis Jordan" wrote:

I agree. If only we could get him to STOP TOP POSTING.

Or get people to use an intelligent newsreader that handles threaded
messages properly, in which case top posting is very useful and
polite.

If you feel strongly about that perhaps you'd like to submit an update
to the RFC. In the meantime....

http://tools.ietf.org/html/1855
If you are sending a reply to a message or a posting be sure you
summarize the original at the top of the message, or include just
enough text of the original to give a context. This will make
sure readers understand when they start to read your response.
Since NetNews, especially, is proliferated by distributing the
postings from one host to another, it is possible to see a
response to a message before seeing the original. Giving context
helps everyone. But do not include the entire original!

The other serious drawback to this approach is the lost earnings
opportunity, which many people overlook in their zeal to find cash. Be
very careful before taking this option.

Lost earnings opportunity in the stock market? Sounds like oxymoron to
me. With the majority of blue chips paying less then 1% in dividends
(please don't state the exceptions, because I understand there are
those rarities), the only "earnings opportunity" in the stock market is
appreciation.

Most 401K loans are levied with an interest rate upwards of 8%. So,
let's recap...He borrows tax deferred money from himself at anywhere
between 6-8% and the interest charged is reinvested back into his
retirement fund.

Unlike your definition of "earnings opportunity" which is speculative
in nature, this is guaranteed (unless he doesn't repay it).

Sorry for the top posts guys!

Regards,

H. Scott Miller
National Commercial and Residential Lender
Carteret Mortgage
TOLL FREE PHONE#: 1.877.716.6495
TOLL FREE FAX#: 1.877.578.2041
EMAIL:

Real Estate Help Desk (www.RealEstate-IQ.com)
Virtual Loan Assistant (www.EZMortgageLoanz.com

Other lenders, take note... THIS is how you participate in Usenet, and
perhaps pick up some business as a side effect to being a genuinely
helpful, reasonable participant in the newsgroup.

Kudos Scott.

--
Todd H.
http://www.toddh.net/

Thank you for the endorsement; I'm happy to hear that some appreciate
and benefit from my advice.

H. Scott Miller
National Commercial and Residential Lender/Broker
Carteret Mortgage
TOLL FREE PHONE#: 1.877.716.6495
TOLL FREE FAX#: 1.877.578.2041
EMAIL:

Real Estate Help Desk (www.RealEstate-IQ.com)
Virtual Loan Assistant (www.EZMortgageLoanz.com)

$cott wrote:
Sorry for the top posts guys!

Thanks for following 'netiquette, Scott. That is very professional of
you.

wrote in message
ups.com...

We're buying a home for about $140K. We are able to put 20% down so we
won't have to pay PMI, but I'd like to drop my monthy payment even
further. We have zero credit card debt now, and an excellent credit
score. We were thinking about borrowing enough on one of the credit
cards to put down $10K more on the house, and purchase 2 discount
points.

I don't know if this is the same everywhere, but when we bought our house,
one of the forms we had to fill out was a sworn affidavit that the money we
were using for the down payment was our own, and was "not borrowed in any
way."

Even if your house doesn't come with such a form, I would think that what
you're proposing to do is to borrow money at high interest in order to
reduce the amount of money you need to borrow at lower interest. Sounds
like a mistake to me.

I don't know if this is the same everywhere, but when we bought our house,
one of the forms we had to fill out was a sworn affidavit that the money we
were using for the down payment was our own, and was "not borrowed in any
way."

Even if your house doesn't come with such a form, I would think that what
you're proposing to do is to borrow money at high interest in order to
reduce the amount of money you need to borrow at lower interest. Sounds
like a mistake to me.

You may not have seen my original post. My down payment is my own and
not borrowed, the whole 20%. The $10K of *extra* down payment would be
borrowed, and I'm pretty sure my banker would not have a problem with
that. I would get approval of course.

Also I said the credit card rate is *lower* than the mortgage, not
higher. 3.99% vs 6.375%.

After much consideration we are probably not going to do it. There are
other things we'll want to do to the house soon (make the garage larger
for one - I don't know how people get by with a regular two car garage)
and we don't want that extra $10k of debt preventing us from doing it.